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Tuesday, October 19, 2010

The $4,000 Question for Commodity Futures Trading with ThinkorSwim, and the Challenge Project

On October 11, 2010, I discussed a 'type' of problem that I've run across with ThinkorSwim. A subscriber informed me that he had been told that he would not be allowed to trade commodity futures unless his account balance was at $4,000.00.

Which obviously put me in an interesting position. I had planned, as the account began to approach $3,000.00, to begin to start some small trades with commodity futures. Brief trades, only lasting a day, in some very liquid markets with a tight spread. These are not trades that would occur very often either, as I would still be using rule no. two, even after a successful, profitable trade to 'buttress' the account.

So I decided to write them an email, which is as follows ...

"Dear Sir or Madam,

The purpose of this email to that I am seeking clarification.

Before I opened my account with ThinkorSwim, I communicated with customer support to make sure that my opening balance would be no problem. I was told that although ThinkorSwim preferred $3,500, someone with my experience level would be able to trade Futures with $2,000.00. I let customer support know that these accounts were being used as a "model" on my blog, and that I was operating on a given rule set.

That margin account now exceeds $2,000.00, although I have not traded with it. As I mentioned in my blog entry Monday when discussing ThinkorSwim, I actually have no intentions of trading commodity futures (naturally only those whose margin requirements I currently meet) with that account. Not for some time. The $25.00 deposits have been following the rules that I outlined on the blog; in an attempt to demonstrate what has worked so well for me over many years.

I can assure you that as that account only has $2,094.63 (With most recent deposit clearing, will be $2,119.63) at the present time, I am not interested in actively trading that account. At all. But a subscriber contacted me, and informed me that he had been told that he was told that unless he had $5,000.00 - he could not trade any commodity futures. So this subscriber asked me how I was able to trade at all. To be quite honest, I was a bit stumped as I had thought up to this point, I thought I had already qualified for futures trading. I don't want to trade actively some commodity futures with such a small account. But I was told when opening the account, that the account would be a futures trading account.

So is my main margin account a commodity futures trading account? I had already assumed it was due to my experience level, although I'm not really interested in trading too much, with such a pittance currently in that account, until the account grows with the rules that I had outlined for myself. But if I'm sitting on $3,600, and I see a trade and decide to take it ... is the account going to be ready for such a trade?

I am seeking clarification on this issue, and I thank you in advance ..."

The response is as follows ...

"Hi Dan,

Thanks for the email. In a margin account you can trade stocks and options. In a margin account, you may also apply for futures trading. Hope this helps and please feel free to contact us anytime.

Kind Regards,"

I have to be honest. I'm not too impressed with that reply. They answered one question, but did not address any of my concerns.

So what's the plan?

It seems, from that email, that I would have to apply for commodity futures trading (which sitting here, is a bit funny to me ... but I guess this does put me back in the realm of those starting out). I will put in this "application" (the quotes are meant with disdain, as I do find it a bit insulting) when I am facing a situation where I would put in an order.

In other words, I'll just proceed as if I had futures trading capability. When a trading opportunity arises? I'll put the application in; although I do not expect to receive a reply by the time that I would execute the trade. I'll just wait for the 'first' opportunity to arise. By waiting thus, I can apply rule no. two in the meantime to that trading account, and built it up regardless.

Depending on the result of that application, when it's made, will depend on which direction I will take with the Challenge project.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 14 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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